Trustee choice to be assessed on capital gains

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Commencing for the 2010–11 income year the trustee of a resident trust may choose (if permitted by the trust deed) to be assessed on a capital gain of the trust. This is allowed provided no beneficiary has received any amount referable to the gain during the income year or within two months of the end of the income year. The choice must be made in respect of the whole capital gain.

This is similar to (and replaced) the choice available to the trustee of a testamentary trust under the law prior to the 2010–11 amendments, but is not limited to those trustees. Under the previous law (that applied from the 2005–06 income year) the trustee of a resident testamentary trust could choose to be assessed on the capital gains for an income year which would otherwise be assessed to an income beneficiary (or the trustee on their behalf).

The trustee will be able to make the choice if, for example, under the terms of the trust the income beneficiary cannot benefit from the capital gains. It is only the trustee that can make this choice.

If the trustee makes a choice in respect of a capital gain then:

the trustee will be assessed on the capital gain under section 99 or 99A, as appropriate

the capital gain is not taken into account in working out any beneficiary's net capital gain for an income year.

Example 108: Trustee choice to be assessed

Marcia is entitled to all the income of a resident trust for the duration of her life. Under the terms of the trust deed, the trust would be wound up on her death and the corpus distributed to Trevor.

While Marcia is alive, the trustee disposes of some shares in the trust and makes a capital gain. Marcia is not entitled under the terms of the trust to receive the proceeds from the disposal of the shares as Trevor is the capital beneficiary.

As the capital gain is included in the net income of the trust for tax purposes, Marcia may be assessed on her share of the capital gain even though she is not entitled to benefit from the gain. The trustee can make a choice to be assessed on the share of the capital gain that would otherwise be assessed to Marcia.

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